TM probes Alcatel kickbacks, allegedly linked to 3G services

By Jahabar Sadiq
Editor

Published: 29 December 2010 7:11 AM

KUALA LUMPUR, Dec 29 — Telekom Malaysia Bhd (TM) has vowed to probe an international bribery scandal which led to a US$85 million (RM263.12 million) contract for telecommunications giant Alcatel Lucent SA, which sources said surfaced in 2007 but was never investigated.

A filing in the United States’ Securities and Exchange Commission (SEC) said two Malaysian consultants were paid a total of US$700,000 for “non-public information” related to competitors’ pricing and bids, believed to be for its then subsidiary Celcom Malaysia’s new 3G mobile services which was launched in 2005.

“The matter was brought up as the deal did not follow procedures. But nothing was done then,” a source told The Malaysian Insider.

The Malaysian Insider understands that TM director Datuk Nur Jazlan Mohamed quit as audit committee chairman after the irregularities were found but not investigated. The Pulai MP who is now UDA chairman confirmed his resignation but declined comment due to corporate secrecy rules.

Celcom and its parent Telekom Malaysia International (TMI) were hived off from TM in 2008. TMI is now known as Axiata Bhd and is listed in local bourse Bursa Malaysia. Its chairman is Tan Sri Azman Mokhtar, who is also Khazanah’s managing director.

In a statement issued last night, Telekom Malaysia expressed concern over the allegations that linked the company to the scandal.

“We take these allegations seriously and will further conduct thorough internal investigations to safeguard the integrity of our procurement process and ensure adherence to our Code of Business Ethics (CBE).

“Upon any substantive findings, we will inform the relevant authorities and will extend all necessary cooperation, where required. TM has a zero tolerance policy on improper and irregular practices and will take appropriate action in the event that any of our employees were indeed involved,” the company said.

“TM is fully committed to a fair and transparent procurement policy and adheres to current best practices. We have very strict and thorough procurement processes that involve technical assessment of any contract scope, together with stringent requirements on the equipment, support and vendor credentials,” it added.

A company source said Alcatel won the deal to supply third-generation or 3G-related mobile services equipment despite the company not having experience in that sector of the industry. The equipment was later scrapped, the source added.

It is understood that there could be more cases of irregularities in TM acquisitions from Alcatel that was not covered by the SEC probe.

Alcatel agreed on Monday to pay more than US$137 million to settle US charges that it paid millions of dollars in bribes to foreign officials to win business in Latin America and Asia.

The telecommunications equipment maker was accused of making payments to government officials in countries including Costa Rica, Honduras, Taiwan and Malaysia to win or keep contracts worth tens of millions of dollars, the SEC and Justice Department said.

Between December 2001 and June 2006, the company used consultants who funnelled more than US$8 million in bribes to officials, and Alcatel also improperly hired third-party agents in countries like Nigeria to help win deals, authorities said.

Overall, the company admitted it earned about US$48.1 million in profits as a result of the improper payments, the Justice Department said.

The company agreed to pay US$92 million to settle the criminal charges filed by the Justice Department and also pay more than US$45 million to settle the SEC’s civil charges.

In 2006, France’s Alcatel bought Lucent Technologies Inc, including its famous Bell Laboratories, which was the pioneer of many communications technologies. The company said the bribery violations occurred before the combination.

Alcatel set aside money for the settlements in the fourth quarter of 2009 and said they would not have an impact on its 2010 results.

The filing on Malaysia titled “The Malaysia Bribery Scheme” was eight paragraphs long and reported that “from October 2004 to February 2006, Alcatel bribed government officials in Malaysia to obtain confidential information relating to a public tender that Alcatel ultimately won, the result of which yielded a telecommunications contract valued at approximately $85 million.”

It noted that TM was owned by the government, who had the status of a “special shareholder” while most senior TM officers were political appointees, including the “Chairman and Director, the Chairman of the Board of the Tender Committee, and the Executive Director”.

“Between October 2004 and February 2006, Alcatel Malaysia personnel paid bribes to employees of Telekom Malaysia in exchange for non-public information. This nonpublic information included important documents and budget information relating to ongoing bids and competitor pricing information.

The filing said the TM employees who received bribes were ‘foreign officials’ within the meaning of the US Foreign Corrupt Practises Act and “were in a significant position to influence the policy decisions Telekom Malaysia made.”

It added the Basel-based Alcatel Standard made significant lump-sum payments through U.S. bank accounts to two consultants labelled “Malaysian Consultant A” and “Malaysian Consultant B”, purportedly for market research.

“Alcatel Standard paid $200,000 to Malaysian Consultant A in 2005 for a series of ‘market reports’ describing conditions in the Malaysian telecommunications market. Similarly, Alcatel Standard paid $50’0,000 to Malaysian Consultant B in 2005 for a ‘strategic intelligence report.

“However, the work product these consultants prepared could not justify the size of Alcatel Standard’s payments. In fact, Malaysian Consultant A and Malaysian Consultant B did not appear to render any legitimate services to Alcatel Malaysia in connection with these payments,” the filing said.

It added these consultants also worked for Alcatel Malaysia before formal agreements were finalised and executed, under what was called ‘gentlemen’s agreements’, which required that consulting agreements be entered into retroactively.

“This process allowed consultants to work for Alcatel Malaysia without being properly vetted through Alcatel Standard’s due diligence process,” it said.

The case is the latest in a series of bribery cases brought by the Obama administration to crack down on illegal payments by businesses to win contracts.

The cases are: USA v. Alcatel-Lucent France SA et al, 10-cr-20906 and Securities and Exchange Commission v. Alcatel Lucent SA, 10-cv-24620, in the US District Court for the Southern District of Florida.

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